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Pricing Currency Futures Options With Lognormally Distributed Jumps

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  • Alan L. Tucker
  • Jeff Madura
  • John F. Marshall

Abstract

We find that a mixed diffusion‐jump process fits most daily currency futures price series better than a mixture of normal densities and, especially, an asymmetric stable Paretian model. We also find that Merton's (1976) mixed diffusion‐jump option pricing model outperforms Black's (1 976) model for valuing currency futures options. Our results suggest that researchers should begin to consider the possibility of jump processes as time‐independent models of other futures price series.

Suggested Citation

  • Alan L. Tucker & Jeff Madura & John F. Marshall, 1994. "Pricing Currency Futures Options With Lognormally Distributed Jumps," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 21(6), pages 857-874, September.
    • Handle: RePEc:bla:jbfnac:v:21:y:1994:i:6:p:857-874
    DOI: 10.1111/j.1468-5957.1994.tb00352.x
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